Conflicting Codes and Codings: How Algorithmic Trading Is Reshaping Financial Regulation

Abstract

Contemporary financial markets have recently witnessed a sea change with the ‘algorithmic revolution’, as trading automats are used to smoothen the execution sequences and reduce market impact. Constantly monitored, they take an active part in the shaping of markets, and sometimes generate crises, when ‘they mess up’ or when ‘they do not want to work’, as traders say. Made of scripts (IT code), algorithms are designed to replicate trading patterns: to be accepted, they have to ‘behave’ according to different sets of texts (regulatory texts framing the marketplace). In this article, we draw on ethnographic fieldwork in order to describe algorithms and discuss the different facets of these widespread objects. We return a controversy articulating around the detachment of trading practices from traders, and its reattachment into a specific financial object. We then raise a few questions relating with the framing of practices: what does this shift in the organisation of trading activities generate on the daily routines taking place in trading rooms? Is it possible to make codes (algorithms) comply with codings (rulebooks and codes of conduct)? How does such ‘equipment’ matter to the marketplaces, and what exactly does it imply for the development of future regulation in the market space?

Keywords: : Algorithmic trading, codes, financial markets, practices, regulation

JEL Classification: G19, G24, G28, K23, L22